Pension scheme deficits down by £17bn

Despite the fact that stockmarkets remained flat, pension scheme deficits have fallen from £52bn to £35bn in June, according to figures consultancy Aon.

The firm provides a monthly tracker of the scheme deficits of the UK’s 200 largest defined benefit pension schemes, including all of those in the FTSE100.

Based on market movements in June, the total estimated deficit for the 200 schemes in Aon’s survey was £35bn at the end of the month, compared to £32bn when it was at its lowest at the end of April.

According to Aon, the decrease is mostly due to a rise of about 0.2% in long-dated bond yields, which would have reduced the deficit by about £15bn. Higher than expected cash contributions over 2005 would have also reduced the deficit by about £2bn.

Andrew Claringbold, principal at Aon Consulting, said: “The cost of pension scheme benefits has been falling as pension schemes are able to earn a higher rate of interest on bonds, which is the investment vehicle the UK accounting standard assumes you will invest in.

“Interest rates may now be at a level where pension schemes should consider taking advantage, either through buying bonds or through the use of derivatives.”